Some Real Estate Investors Ditch Equity For Debt As Deal Prices Rise

Source: Law 360

7/18/2013

Adam Weissburg was quoted in a July 18, 2013 article published by Law360 about real estate investors that are ditching equity for debt as real estate prices rise. The article addresses the move by major commercial investors who are flipping from equity to lender positions on deals they believe are overvalued.

In discussing one of the biggest reasons why investors are choosing to approach deals as a lender or flip to the debt side, Weissburg told Law 360 that the foreclosure remedy for a lender is much simpler than any remedy a co-owner might have in the event of a default, and while it can sometimes take months if the borrower doesn't cooperate, foreclosure is at least a clean break.

“Preferred equity comes with baggage in the form of buyout rights, and in that way, when something goes wrong, it can be like a divorce, dragging on for months or years before the relationship can be severed,” Weissburg said. “That lingering component can be very hard to grapple with at times.”

Weissburg went on to say that that component is largely absent from a borrower-lender relationship and being a lender puts investors in a better position should litigation arise, since there tends to be a higher burden against a lender.